The automobile sector is witnessing a gradual change in the consumption pattern of customers; with a preference for bigger vehicles taking precedence over cars of smaller stature. The clear distinction between the car segments small hatchbacks, sedans, and sport utility vehicles (SUVs) is becoming increasingly blurred with the entry of new product segments such as crossovers, compact SUVs, mid-sized SUVs, MPVs (multi-purpose vehicles) and more.
Car buyers are now spoiled for choice between different vehicle segments, overlapping utilities and features and a plethora of brands with different sensibilities. Choosing a car requires careful planning and research, or you could end up with an inefficient investment. Plus, buying a car also means investing in a car insurance policy as mandated by the Motor Vehicles Act, 1988. While calculating the total cost of purchasing your vehicle, do not forget to factor in this compulsory cost as well.
Car insurance premiums depend on several factors such as:
With many car models available in the market, the general rule is the higher the cost of the car, the higher will be the insurance premium. As a result, there could be premium hatchbacks that may cost more to insure than an entry-level sedan or compact SUV.
Insured Declared Value (IDV)
The IDV of your vehicle is the maximum amount you can claim from the insurer in case of damage beyond repair, or if your vehicle gets stolen. It is calculated keeping in mind the depreciation of your vehicle. IDV takes into account your car's condition, mileage, accident history and functionalities.
To put it simply, a higher IDV would attract a higher insurance premium. It is crucial to arrive at the right IDV as a high IDV inhibits reselling prospects and is expensive, whereas a low IDV might not provide enough coverage.
Usually, bigger cars come with larger engines, measured in cubic centimetres (cc). The “cc" of engines determines its power. A higher cc engine would generate more power than a lower cc engine, resulting in faster speeds and higher chances of accidents. This explains why cars with bigger engines attract a higher insurance premium. Insurers generally classify private car engines into three categories—500-1000 cc, 100-1500 cc, and upwards of 1500cc. Supercars or exotic sports cars with high-performance engines may require a special supercar insurance policy which is no common with many insurers.
Safety features, entertainment units and other technological innovations also affect your insurance premium. A high-end digital infotainment centre, ventilated seats, alloy rims, etc. will be more attractive to potential robbers, therefore, exposing your vehicle to a higher risk of getting stolen. Additionally, car models with these features are usually costlier compared to the base variants. As a result, the cost of insuring the vehicle rises.
But not all innovations increase the cost of insurance. Vehicles with enhanced safety features such as airbags, autonomous emergency braking (AEB) systems, parking assist, lane-keeping assist, driver monitoring systems etc. help in reducing the premium as they aid in accident prevention.
Neighbourhoods with a history of criminal activity, theft, vandalism, and accidents attract a higher rate of premium. Insurers usually zero in on the pin code where the car will be parked at most times. Urban areas are prone to such incidents, thereby increasing the cost of insuring your vehicle compared to that in rural areas.
Other factors that could affect your insurance premium are weather-dependent such as the occurrence of hail, storms, snow etc. Additionally, if car repair costs are high in your area, expect to pay a higher premium.
Bonus and Deductibles
Not making any claims during your policy coverage allows you to benefit from the No Claims Bonus (NCB) clause. Safe driving is rewarded with a discount on your premiums at the time of renewal. The longer you do not make a claim, the higher your discount. You can claim up to a 50% discount on your premium if you do not make any claims for five consecutive years. Furthermore, ensure you renew your policy within the due date, as policy lapses can increase your subsequent premium.
You can further reduce your premium by opting for deductibles. It is essentially a cost-sharing agreement between you and the insurer, wherein, the insurer pays part of the claim amount, while the rest is borne by you. Not only does it lower your premium, but it also instils a sense of responsibility to the car owner, helping him/her to utilise the vehicle safely.
Given that insurance premium depends on risk exposure and probability of certain eventualities, younger or inexperienced drivers attract a higher premium. Experienced drivers are assumed to drive safer on the road. Also, if you have made any previous claim, your premium will be on the higher side as it signals that you are likely to encounter a similar situation again.
Long term car insurance policies, usually up to three years, come with lower premiums than single-year car insurance policies. In addition to lower premiums, you also enjoy higher NCB and the convenience of not having to renew your policy every year. You save on administrative costs while also safeguarding yourself from any potential increase in premium rates in the future.
What kind of policy do I buy?
A comprehensive car insurance policy will have three parts:
1. Third-party cover
It is mandatory to have a third-party cover as it covers against any financial loss or loss of life caused by your vehicle to another person or property. However, it does not cover the expenses borne by you for repair work on your car.
2. Own Damage cover
The own damage cover fills in the gap left by the third-party cover as it provides reimbursements for damage to your car in case of natural or manmade calamities and accidents. While it is not mandatory, it makes financial sense to opt for the own damage cover to prevent unforeseen out of pocket expenses.
3. Personal Accident cover
Another mandatory component of your car insurance policy, this cover provides reimbursement in case of permanent disability or death due to an accident. However, this policy is not car-specific and is given to the owner-driver, thereby eliminating the need to have multiple personal accident covers, in case you have multiple cars.
When choosing a car, take into account the total price you will be paying for not just buying the car but also for owning it. Insurance costs cannot be ignored and it is wise to consider your options. You do not want to take a car that costs less to run and maintain only for it to not solve your real-world conveyance challenges. At the same time, you do not want to buy a big car, paying extra for insurance, when you do not plan to utilise it to its advertised potential.